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Forum Report
Views of Responsibility for
Investor Communications
Copied below are comments of
Leonard Rosenthal, a Professor of Finance at Bentley University who is
recognized for his research that relates securities valuation to corporate
governance and information access variables, responding to the views
presented by Stephen Davis and Jon Lukomnik in their recent column:
Professor Rosenthal's comments continue an
exchange of views
started a year ago in response to a paper co-authored by Dr. Davis
addressing responsibilities for investor communications relating to
corporate governance issues. For a report with links to the paper and
responsive comments, see
As you'll recall from reviewing the Forum's
June 2008 report of initial responses, this debate about communication
responsibilities was what stimulated the initiation of our
current Forum program addressing "Say on Pay."
The essential objective of this program has been to develop effective
communication processes as a foundation for informed corporate and investor
decisions. We will welcome your further comments on how to do this.
GL – April 22, 2009
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.com
Comments of
Leonard Rosenthal
April 21, 2009
Comments on “Create Meaningful, Effective Say-on-Pay Plans,” by Stephen
Davis and Jon Lukomnik, Compliance Week, April 14, 2009
My initial reaction to this column is that the authors are doing a good job
of explaining how say on pay should work. Examples appear in their
introduction when they use expressions such as “please help us restore some
rationality,” “we believed say on pay would increase communication among…
leading to more nuanced communications,” and Section 2 view of an effective
communication process is spot on. It is wonderful to see that the authors
have embraced such a constructive approach to say on pay.
This positive view came to a screeching halt in Section 4, when the authors
assert their view that the very professionals on whom both the company and
investors rely for two way communications – investor relations professionals
– have little or no ability to do so on say on pay. This undermines their
own points.
Dr. Davis and Mr. Lukomnik seem to believe that corporate governance
professionals are the only ones with the specialized knowledge to
communicate with investors on the subject. The authors say that Investor
Relations Officers (IROs) are only “best acclimated to dealing with analysts
who want to know, for trading purposes, what will happen next quarter.” Are
they not aware that it is the IROs who regularly communicate with
investors/potential investors on all the subjects that inform investment
decisions – earnings, dividends, strategy, new executive hires,
acquisitions, etc., – and indeed, corporate governance? Do they really
believe that the only job of IROs is to provide quarterly information for
enhanced trading opportunities, when in fact their role is to effectively
manage communications so as to build a stable base of long-term investors?
Given the obvious importance of corporate governance to the success of a
public firm, it is hardly surprising that IROs consider corporate governance
to be a subject of importance to investors and a cornerstone of their body
of knowledge. Since executive compensation has become such a hot-button
issue, IROs have recognized the necessity of talking with their major
investors and others about this and have relayed these observations back to
their boards and senior management. It is then clearly their responsibility
to explain to their investors what their firm is doing with regard to this
important subject.
In summary, communication on corporate governance, and say on pay in
particular, is not best served by creating a new profession to deal with it
as if were something unrelated to all other issues that affect investor
decision making. It is far more effective to make communications about
corporate governance a top priority for those who investors already rely on
for all other corporate information – investor relations professionals.
(Note: As a professor of finance at Bentley University, and as
a member who has participated in programs with the National Investor
Relations Institute, I want to state for the record that the views expressed
above are mine alone and not those of these organizations with which I am
associated.)
Leonard Rosenthal, Ph.D.
Professor of Finance
Bentley University
Waltham, MA 02452
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